Did you know you can still get an interest rate lower than the current rate?

I’m not referring to YOU coming up with extra cash at closing to buy points.

I’m talking about a specific loan product called a 3-2-1 (or 2-1) buy down.

With this specific product, you ask the seller for a concession (seller pays) to buy down your mortgage rate.

I know you’re thinking “who would agree to this?” 

It’s actually becoming more common with offers because it’s helping buyers stay in the game and helping sellers from having their homes sit with no buyers!

The way it works is you get whatever the current mortgage rate is as your locked in rate for the 30 year term. But, the 1st 3 years are lower (or 2 years if you get a 2-1). With a 3-2-1:

Year 1 you get 3% off

Year 2 you get 2% off

Year 3 you get 1% off

In year 4 your rate returns to whatever the original rate was when you locked in.

The great thing is that you can refinance at any time and you may never actually end up paying the rate you locked in at. 

If you refinance before year 4 when the rate returns, whatever concessions are left over get applied toward your principal. This means the money paid up front by the sellers is applied over the entire 3 years to continuously buy the points down. If you refinance before the 4th year, that unused buy-down money will be available and applied toward your mortgage principal!

For example:

Say the going rate is 7%. You then submit an offer on a home and you have your realtor offer with specific seller concessions for this buy-down. The sellers accepts the offer. Once you close on the home, your mortgage rate will now be: 

Year 1: 4%

Year 2: 5%

Year 3: 6%

Years 4-30: 7%

If the rates rise, you’re still locked in and your rate will not increase anymore than 7%. If the rates lower, you can refinance, and the remaining buy-down funds get applied to your principal.